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National Directory of Real Estate Note Buyers


National Directory of Real Estate Note Buyers

A little known but important component in the investment real estate industry is real estate note buyers. There are both individuals who buy real estate notes and real estate note buying companies. Investment property owners should be aware of the options that a residential note buyer can add to their investment strategy. This is especially true for those who have provided seller financing for the purchase of their properties. Real estate note buyers can help you manage the risk in your portfolio and be a source of cash when you need it. If you are not familiar with this investment resource, you should trust the HouseCashin directory of top-rated real estate note buyers to guide you to a reputable real estate note buyer.

Frequently Asked Questions

When a loan is made, the borrower signs a promissory note that obligates them to repay the loan and spells out the loan’s terms. When the collateral for the loan is real property, they also sign a mortgage, deed of trust, or contract for deed. This document gives the lender the right to take possession of the collateral if the borrower defaults on the loan. These documents are often referred to collectively as the mortgage note, even though the mortgage document itself is not a note. Sometimes the lender will decide to sell the loan. This is referred to as selling the note. A reason to sell could be that the borrower is behind in their payments and the lender wants to manage their risk. Or, the lender might sell because they need the cash for other opportunities or to reallocate their assets. A loan note buyer is a person or company that buys the loan from the lender. That entity now becomes the lender, and the borrower makes their loan payments to them.

Real estate note buyers don’t invest in the property. They invest in the financing of the property. The financing of any kind of residential property can be bought and sold. There are note buyers who specialize in mobile home notes, multi-family property notes, or a simple rental house note. Real estate note buyers spend time networking and researching in their market similar to other real estate investors. Rather than looking for properties, these investors are looking for lenders who might sell their loans. Prospective note sellers include individuals who financed the purchase of their own property, and banks or other commercial lenders who sell institutional notes. Once a mortgage note buyer has identified a lender who wants to sell a loan, they have to research the deal in more detail. This includes checking the credit rating of the borrower. It also means doing an inspection of the property to certify its physical condition, and researching property values in the area. All of these things will have a bearing on the value of the loan being sold. Investors buy mortgage notes for different reasons. Some note buyers look for the steady income that comes from borrowers who pay on time. Other buyers prefer loans that are in trouble because they actually want the collateral that backs up the loan.

There are different kinds of real estate notes and some are more valuable than others. Buyers often specialize in buying a particular type of note. A seller financing promissory note held by an individual seller is a private note. This is sometimes called a purchase money note or seller note. Loans that are originated by commercial lenders like banks are called institutional notes. Real estate note buyers expect to pay less than full value for loans, which is why they are called discounted notes. Some notes are discounted more heavily than others depending on the loan’s value. Notes from loans where the borrower is paying as agreed are called performing notes. On non-performing loans where the borrower is behind in their payments, the mortgage is considered a non-performing note. These are also called distressed mortgage notes. There is even a market for defaulted mortgage notes where the borrower has stopped paying altogether and foreclosure proceedings have started. One feature that can impact a loan’s value is the lender’s lien position. A lien is the lender’s claim to the property that is collateral for their loan. If the lender recorded their lien first, then they hold a first mortgage note. They have a prior claim over loans made later, called second mortgage notes. A first lien note is more valuable than a second lien note. If a seller doesn’t want to let go of the entire loan, they can sell a portion of it, such as the next 24 or 36 months of payments to buyers of partial payment mortgage notes. Loans are also differentiated by the method in which the payments are calculated. A fully amortized note is a loan that is repaid entirely with monthly principal and interest payments. Fully amortized loans can have a fixed interest rate, or they can be an adjustable rate note with a rate that changes periodically. A loan that has a period of fixed principal and interest payments with a significant balance due at the end of that period would have a balloon payment note. If the loan only requires the borrower to make monthly interest payments with the full balance due on the final payment, that is an interest only note, or straight note. Some investors will buy a reverse mortgage note where the homeowner is taking out some of their equity in monthly payments. Others prefer a VA mortgage note or an FHA mortgage note for residential purchase loans provided by the Veteran’s Administration and the Federal Housing Administration. Loans that have been sold once already to the Federal National Mortgage Association, or Fannie Mae are available to buyers as FNMA notes.

When you are looking for a real estate note buyer, you should start with experience and a history of closed transactions. There is a right way to negotiate and document the sale of a loan, and you need to know that your buyer has done this successfully in the past. Ask for references. Not only should the buyer have experience in buying loans, those experiences should have been good ones for their sellers. Check with the Better Business Bureau for the buyer’s rating. The BBB will show if any disputes were registered with them and the resolution of those disagreements. Make sure that you know whether you are dealing with a note buyer or a note broker. Some buyers and note buying companies serve as both. There is nothing wrong with that. Sometimes you might be better served by a broker. You just need to know up front what you’re dealing with. A broker will charge a fee that you will not have to pay if you are dealing directly with the buyer. You should also search to find out if your state requires any licensing for brokers or buyers. If so, make sure that the person or company that you are dealing with is properly licensed. The value of your note will be determined by several things that will have to be researched by the buyer such as the borrower’s credit rating. Any value quoted before all of the due diligence has been performed is basically an estimate. Be careful not to get caught up in a bait-and-switch. Try to get several quotes from different buyers if possible.

Referrals from satisfied clients are a strong start to your search for a real estate note buyer. Ask people in the real estate investing club in your local area to see if other property owners have sold seller financed loans. Ask real estate professionals who’s services you have used in the past such as attorneys, lenders, or appraisers if they know any reputable mortgage note buyers. The internet is, of course, the starting point for many property owners searching for someone to buy their loan. As we mentioned above, be careful to research the buyer’s reputation and integrity. Check reviews outside of their website to see if there are unresolved complaints about them out there. Your best start is to look at the HouseCashin list of real estate note buyers. HouseCashin is an acknowledged leader in the real estate investing industry providing guidance to real estate investors in all areas. Trust HouseCashin to help you strengthen your investment strategies by finding the best real estate note buyer for your needs.

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